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This study attempts to assess the ability of Belgian REITs to protect against inflation. The methodology used to assess this ability is based on the extension of Fisher’s hypothesis (1930) developed by Fama and Schwert (1977). A linear regression estimated by ordinary least squares as well as a vector error correction model are used to provide both short and long term answers. As far as the data is concerned, monthly returns of Belgian REITs from January 2000 to March 2024 compiled manually by the author are treated.

Sciences économiques & de gestion > Finance

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In the wake of the global financial crisis of 2008, central banks worldwide embarked on a journey of unconventional monetary policy measures to stimulate economic recovery. One prominent feature of this era has been the persistent lowering of interest rates to what economists refer to as the effective lower bound. As central banks approached this boundary, the efficacy of traditional monetary policy tools came into question, leading to a surge in academic research exploring alternative strategies for conducting monetary policy in such circumstances.

Sciences économiques & de gestion > Macroéconomie & économie monétaire

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This master’s thesis studies the systemic risk of the hedge funds industry through a model developed and used by van Oordt and Zhou (2019a, 2019b). This model measures systemic risk by splitting it into two components: the Pure Tail Risk, defined as the relative tail exposure towards the whole financial system approximated by the S&P500, and the Systemic Linkage, which represents the probabilistic link of the extreme negative returns between the hedge funds and that proxy. Our first intended contribution resides in the explanation and the reconciliation of these two measures, the downside risk­related component and the tail dependence aspect, into one single metric. Our second contribution relates to innovations brought in the estimation method, which relies on Extreme Value Theory to overcome the scarcity of data and the low frequency of reporting inherent to the hedge funds databases. In order to do so, we implement a LASSO-­Generalized Pareto Regression for tail exposure explanations and use copula distributions for tail dependence measurement.Our work provides several new insights. We observe a significant positive correlation be­tween liquidity and systemic risk indicators, which highlights the link between shadow bank­ing, hedge funds and systemic risk. Moreover, a larger fund size and a longer advance notice act as systemic risk reducers, while the lockup period drives up the systemic threat. Driven by the Pure Tail Risk, the results show an increase of the systemic risk during period of stability such as the period of 2003 to 2006 and after the 2008 crisis. Coupled with the high commonal­ity of the industry in such periods, observed by Bussière et al. (2014) between 2003 and 2006, our findings highlight the potential threat that hedge funds bring to the stability of the financial system. We uncover a common dynamic behaviour of hedge fund strategies over time, even though Equity Hedge and Event Driven hedge funds show significantly higher values. This re­sults is all the more important given that we observe that the Equity Hedge strategy represents the largest fraction of the industry. Finally, our model stresses a shift of the hedge funds tail risk dynamic after the 2008 crisis, showing a genuine potential for future research.As a result, we believe that our efforts to identify and explain the systemic risk of the hedge funds industry and its components have led to insightful results, which point to an increasing need for an adapted regulation.

Finance --- Hedge funds --- Systemic risk --- Value-at-risk --- Tail dependence --- Shadow banking --- Sciences économiques & de gestion > Finance

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This master thesis presents the main intuitions related to the optimal monetary policy and optimal fiscal-monetary policy mix literature, considering the zero lower bound on the nominal interest rate, through three main branches: the stabilization trade-off between prices and output gap, the history-dependent policy, and the counter-cyclical policy. The main results are, at the zero lower bound, firstly, an optimal monetary policy should commit to a history-dependent policy in order to stimulate the aggregate demand and reduce the deflation expectations, secondly, combining the monetary and fiscal history-dependent policy allows to create an inflationary and output boom, thirdly, a counter-cyclical fiscal policy regarding the government spending is effective. The thesis ends with an application to the case of the euro area, mainly through the analysis of the various crisis over the past fourteen years, and presents one personal economic avenue for improving the policy mix in the euro area: the implementation of an optimal forward-guidance policy mix.

Zero Lower Bound --- Optimal policy --- Euro Area --- Forward guidance --- Policy mix --- Sciences économiques & de gestion > Macroéconomie & économie monétaire

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Previously, the low interest rate environment has been related to supporting inflation and economic activity in the wake of the global financial crisis of 2008. Until recently, this Low-For-Long (LFL) interest rate environment is a source of risk because of its potential effects on banks' profitability and consequently on financial stability.

In the academic literature, the impact of LFL interest rates on bank profitability has been discussed by several authors and in different economies around the world. It was found that there are several oppositions between central bank economists and academic economists. The former did not consider that the expansionary monetary policy had a negative effect on bank profitability, and, therefore, did not have a negative effect on the economy through the banking system. The latter, however, argued that the effect of the LFL on banking channels was negative and thus had a negative effect on the economy. The opposing views of the different authors are reflected in the ambivalent results of studies. While some point at the potential negative effects on bank profitability, others argue that the effect is neutral. These oppositions stem from the ambiguous results of recent empirical work on this issue. 

In contrast to the relationship between profitability and interest rates, the scientific literature is not very developed on the relationship between bank risk-taking and low interest rates. This research thesis presents an empirical analysis to measure the impact of low interest rates on the risk-taking and profitability of banks in the euro area (EA). 

To carry out our empirical study, the use of a fixed effect model allows us to analyse the relationship between interest rates and profitability as well as risk-taking of banks in the EA. To do so, annual data from 85 major European banks directly supervised by the ECB over 20 years, from 2000 to 2020, are used to empirically estimate the above relationship. 

Based on our regression results, the impact of low interest rates is found to have a positive effect on ROA while the effect is negative for the NIM. Regarding the relationship between banks' risk-taking and low interest rates, the effects are positive for risk-taking. Despite our various models and analyses, it would be wrong to draw a hasty conclusion.

A theoretical discussion of the impact of an increase in the European Central Bank's key interest rate on bank profitability and risk-taking is presented at the end of this research paper.

low interest rate --- low-for-long interest rate --- risk-taking --- banks profitability --- monetary policy --- Sciences économiques & de gestion > Macroéconomie & économie monétaire